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COMMENT

04/12/2011
March 2011 saw several milestones for the London 2012 Olympic Games. The main stadium was announced as complete, on time and under budget, tickets to Games went on sale and the highly respected business magazine, The Economist produced deliberately controversial poster ads about the London 2012 Games.

In the ad that is likely to create most controversy, the headline states: ‘HOSTING THE OLYMPICS IS A WASTE OF MONEY’. The poster then claims that the cost of the Games ‘may’ be £9 billion, ‘twice what we [the British public] were originally told’ and the cost will be ‘around £350 for every British household’.

It then says that the original idea was to regenerate East London but only one fifth of jobs on the Olympic site have gone to local people. It finally states that past hosts such as Athens and Montreal have been stuck with huge debts and white elephants.

A contrasting positive Economist poster states that the Olympics will help the ‘poorest bit’ of London and that such a big construction project has been a ‘boon to a stumbling economy’; adding, ‘Having a big party in London will cheer the place up. That's worth a lot.’

Obviously as marketing specialists, we’d be pretty short-sighted not to realise that the ads are designed to grab attention and the fact that we (and many other sections of the media) are writing about them shows that this has worked.

However, there is a big problem with the overall message that has been much repeated by a large section of the media and British society in general. That is the belief that the Games will cost the British taxpayer £9 billion and that the money is being wasted.

Whether you are for the Games in principle or not, the fact is that the actual cost of the Games to the British taxpayer is likely to be much less, a final figure of around £7.2 billion is the latest projection.

The actual cost of constructing the Olympic facilities in London is significantly short of this figure. The stadia and other venue costs are in the region of £1.1 billion – indeed London is utilising more existing venues such as Wimbledon, Wembley and the O2 Arena, than most host cities have in the past.

Many of the new facilities will also be used after the Games – and it should be borne in mind that London has been particularly poorly served for sporting facilities other than for football, cricket and tennis. The new swimming, cycling and athletics facilities will now help the City to attract international events and the associated revenues for decades to come. The main stadium will be leased by West Ham United and will eventually recoup part of the construction cost as well as guarantee increased employment in the area.

The big costs on the Olympic site have been for site preparation and transport. This has cost in the region of £2 billion and was desperately needed regardless of whether Games were to be staged. The Olympic Village will cost in the region of £500m plus. The Village will, however, be completely re-usable, although will probably not re-coup the total outlay.

Other big costs include security – approximately £900 million in total. Given that much of this will be taken up in wage payments, a significant chunk will end up back in the pocket of the UK treasury as tax receipts. Indeed, many of the other costs have a large tax element included as there is a VAT payment running to tens of millions of pounds due and all those working on the project will be contributing taxes to the UK economy.

The revenue from LOCOG sponsors and ticketing is roughly £1 billion, while the grant from the International Olympic Committee, which comprises revenue from TV rights and international sponsors, adds roughly another £1 billion. These will pay for the actual running of the Games.

Although at this point no exact figures can be projected, it is clear that the true cost to the UK economy as a whole of staging the Games is likely to be between £4-5 billion.

This sum will go a long way towards regenerating an area of London that has needed such investment for decades. Put simply, without the Olympics that would probably never have happened and it’s arguable that the regeneration is actually being subsidised by the private sector with a large chunk coming from inward investment through IOC grants and sponsorship from international corporations. An interesting question to put to those criticising the cost of staging the Games is how much would Britain have to pay annually for the Olympic site to remain derelict? The costs of 'degenerated' inner city areas include huge sums spent on social security, policing, health, environmental management as well as the opportunity cost of a prime site being laid to waste.

So apart from providing the UK with sporting facilities that it needed and regenerating a huge swathe of one of the world’s great cities and creating thousands of jobs, what else can Britain expect from the Games?

The benefits here are potentially huge. The eyes of the world will be focussed on the country in the build up to, and duration of, the Games. Already the message is positive – London has not been beset with the delays and construction problems that blighted Montreal, Athens and more recently Delhi (for the Commonwealth Games). Indeed all the IOC reports have focussed on how well the country has managed the massive task.

It gives Britain a chance to demonstrate that it is a modern, efficient and multi-cultural nation, able to handle logistical, social and engineering problems.

This presents a massive opportunity for tourism, inward investment and exports of British goods and services. The Economist ad conveniently ignored Barcelona, Sydney and Beijing. All invested large sums to help regeneration and/or improve their global image. All subsequently believed that the investment was money well spent as the world looked on impressed. In years to come, the media might actually have to eat humble pie and accept that London 2012 had delivered the nation a very profitable legacy and yes – we might also have a great party to boot!

Related content:

International Journal of Sports Marketing & Sponsorship: Olympic Special Issue

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